Your electricity bill keeps rising. Here’s what’s actually causing it—and how to fix it

Retail electricity prices are rising faster than inflation—and the fixes being discussed in Washington and state capitals could make things worse, not better. President Trump has pointed to AI data centers as a contributor, calling rising utility prices an issue that “needs some PR help.” But the real drivers are structural, and popular-sounding policies like rate freezes and blocking new energy permits would only deepen the problem.

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Blocking permits for new clean energy keeps cheap supply off the system. Rate freezes and threats to exit competitive power markets would chill investment just at the exact moment a grid built for a 20th-century economy is being asked to support 21st-century demand. So what’s really driving prices up—and what would actually work?

Electricity rates are climbing for several overlapping reasons, and anyone promising a quick fix is either mistaken or misleading you. Power demand is surging, driven in large part by artificial intelligence and energy-intensive data centers.

Utilities are also spending vastly more on the “poles and wires” side of the system: the Energy Information Administration reports that transmission spending nearly tripled from 2003 to 2023, reaching $27.7 billion, while distribution spending hit $50.9 billion in 2023. On top of that, regulators appear to be approving utility profit rates higher than necessary—right as aging infrastructure demands costly upgrades.

No single policy will bring immediate relief. But one central driver of rising bills is a regulatory model that protects monopolies, limits customer choice, and rewards overspending while deterring innovation. Here are three reforms that would actually help.

Fix 1: Stop Rewarding Utilities for Overspending

Most utilities are regulated monopolists—they don’t compete for customers, so regulators must balance two goals: attracting enough capital to maintain reliable service while preventing utilities from gouging customers who have no other option.

Recent reports suggest that regulators have become overly generous in setting utility returns. One report estimates that excess returns for investor-owned utilities cost customers about $50 billion a year—roughly 13.6% of gas and electric revenue, averaging around $300 per household. Another found that excess returns averaged approximately $7 billion a year for the last thirty years. The data points in one direction: state public utility commissions, which regulate retail rates, should make sure utility returns reflect actual financing costs.

Regulation also creates a perverse incentive to overspend. Under traditional rate-of-return regulation, utilities earn returns on capital investment. If a utility earns an 8% return, it makes $80 on a $1,000 investment—but only $8 on a $100 one—even if the cheaper option delivers the same economic or reliability benefits. With utility spending at $320 billion a year, this “capital bias” is likely having a real effect on customer bills.

So what should regulators do? In addition to reducing returns, regulators should also tie utility profits to specific performance criteria such as lower rates or improved reliability. Performance-based rates have been piloted in the UK, with early signs of success. When properly designed, performance-based regulation can encourage utilities to make better use of the system through energy efficiency, demand response, and grid-enhancing technologies.

Fix 2: Get Power Online Faster

Prices rise when supply doesn’t keep up with demand—and right now, the regulatory system makes it difficult to get resources online quickly. Interconnection queues, which are essentially waiting lists for proposed power generators that want to connect to the grid, face extreme backlogs. The Lawrence Berkeley National Laboratory reports that the typical project built in 2023 took nearly five years from interconnection request to commercial operation. That is up from under two years in 2008.

Although federal regulators have begun to reform interconnection processes, the interconnection queue still moves sequentially, regardless of how much value a generator will deliver to the system and regardless of whether projects are speculative and likely to drop out of the queue.

Two policies could help. First, auction off interconnection positions so that resources that are likely to be built and relieve system stress can skip to the front of the line. Second, projects that are willing to accept operating constraints should be allowed to connect faster. Regulators should let resources connect quickly if they accept curtailment risk (reducing power to maintain system stability) or forgo reliability payments. In short: faster access to the grid, in exchange for accepting some operational risk.

Fix 3: Break Up Utility Monopolies and Plan for the Public Good

Vertically integrated utilities, which own both generation and transmission, profit more when transmission bottlenecks prevent low-cost resourc